LUNA: what role did exchanges have in the collapse of cryptocurrencies

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LUNA: what role did exchanges have in the collapse of cryptocurrencies

The $40 billion collapse of the popular Luna cryptocurrency underlines the crucial role played by exchanges as guardians of digital assets that are available to conventional operators.

The fierce competition among exchanges has caused a sharp increase in the number of cryptocurrencies available on the platforms, which are popular with new investors.

But whats risks of listing newer cryptos -yllack of regulation around these assets – became apparent last week when Earth USDa cryptocurrency that promises to equal the value of the dollar American, was practically worthless, also erasing that of its sister token Moonin what the research firm CryptoCompare called “the largest destruction of wealth in this amount of time on a single project in the history of cryptocurrencies”.

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Its collapses have focused attention on the criteria applied by exchanges when they decide list a cryptocurrency. Unlike Stock marketthe regulators play little or no role in overseeing the issuance and trading of tokens in most jurisdictions.

“I think the entire industry needs to set the bar high when it comes to evaluating whether to list or invest in stablecoins that are backed by things like algorithms,” said Lennix Lai, director of financial markets at OKX, a cryptocurrency exchange.

Major exchanges such as Coinbase, Binance, OKX, and Crypto.com, which previously allow their customers to buy Terra or linked cryptos, have halted operations during the crisis.

The first port of call for many novice investors in cryptocurrencies are the major exchanges, such as Binance and Coinbasewho say they investigate the cryptos before making them available to its millions of users.

It is true that we are listing more and more assets than eversaid Paul Grewal, legal director of base of coinsduring an interview in April. “At the same time, there are many, many more assets available for consideration and submitted for consideration than ever before.”

Greval said that base of coins rejected “many, many more assets” than he approved. In March, added 24 new assets for trading out of the 160 that requested considerationsaid.

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Total, Coinbase lists 164 cryptocurrencies as of Aprilvs. July 28, 2020, according to the most recent data from CryptoCompare. The offshore exchanges FTX, Bitfinex and Binance they have more, but their pack of cryptocurrencies has grown more slowly.

Operators’ enthusiasm for access the latest crypto trend press the exchanges to include more assets. The decisions of the platforms They also have a great influence on the records that gain traction. The new listings in base of coins they often skyrocket in price as more traders access the cryptocurrenciesa pattern some analysts have called the “coin base effect“.

“Suddenly, there is a massive influx of liquidity when a token appears on a exchange as base of coins“said Roberto Talamas, a researcher at the data company cryptocurrencies Mesari.

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The CEO of FTX, Sam Bankman-friedhas said that only 50 cryptocurrencies They seem to have real value. But most of the exchangesincluding that of FTXthey have a list of several hundred assets.

Most jurisdictions have few, if any, legal rules about what cryptocurrencies can be publicly traded for normal people to trade, so exchanges play a key role in scrutinizing the cryptocurrencies. “If you were in a regulated world, you would have to account for the products you put on your platformsaid a senior executive at a large European crypto group.

James Kaufmann, a partner at the Howard Kennedy law firm, said the regulation provides bags Y clear set of listing criteria to be enforced, while the markets for cryptocurrencies they operate on a “buyer beware” basis.

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“The clue is in the name, isn’t it? It’s a cryptocurrency exchange or one Stock Exchange?”, said.

The executive director of Binance, Chang Peng Zhaohas said that he would like regulators to give guidelines on the listing of tokens. But until now, the largest exchange in the world it has relied on “people’s intelligence” to decide which coins to list, he said in an interview in March.

“Very often, people are better judges than us,” Zhao said, adding that the number of users of a cryptocurrency is the most important criterion for Binance include it on your list. In a blog post about his regimen of quote, Binance said it also subjects the tokens to “rigorous due diligence“.

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Geminithe exchange owned by billionaires winklevoss cufflinksHe said his goal is to list digital assets in demand by customers, but he also tries to protect his customers from dangerous tokens.

If we think there is a genuine threat that our client funds are at risk, then we will not move forward.said Brian Kim Johnson, general manager of the Crypto Core team at Gemini.

The scrutiny on rules applied by exchanges when they decide to include a cryptocurrency on the list comes as the strategy of adding more crypto to fuel growth shows signs of faltering.

The buying and selling of smaller tokens contributed to a sevenfold increase in trading volume in base of coins last year However, the negotiation of what the exchange calls “other cryptocurrencies” was reduced by more than half in the first quarter, compared to more than $370 billion of the last three months of last year, according to the calculations of the financial times. The category includes other cryptocurrencies besides bitcoin Y etherealthat did not suffer such large declines in operations.

The CEO of base of coinsBrian Armstrong said last month that the platform planned to create a system for users to rate and review new digital assetssimilar to product reviews in airbnb either Amazon. base of coins believes the system can “help create additional protections for consumers in cryptocurrencies“, said.

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